The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow:

		Total		Dirt Bikes		Mountain Bikes		Racing Bikes
Sales	$	917,000	$	262,000	$	401,000	$	254,000
Variable manufacturing and selling expenses		464,000		117,000		192,000		155,000
Contribution margin		453,000		145,000		209,000		99,000
Fixed expenses:
Advertising, traceable		69,500		8,100		40,500		20,900
Depreciation of special equipment		43,300		20,100		7,700		15,500
Salaries of product-line managers		116,000		41,000		38,400		36,600
Allocated common fixed expenses*		183,400		52,400		80,200		50,800
Total fixed expenses		412,200		121,600		166,800		123,800
Net operating income (loss)	$	40,800	$	23,400	$	42,200	$	(24,800)

*Allocated on the basis of sales dollars.

Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out.

Required:

1a.	What is the impact on net operating income by discontinuing racing bikes? (Decreases should be indicated by a minus sign.)

1b.

Should production and sale of the racing bikes be discontinued?

	Yes
	No

2a.	Prepare a segmented income statement.

2b.

Would a segmented income statement format be more usable to management in assessing the long-run profitability of the various product lines.

	Yes
	No